Maximum sentences are intended for the worst cases — and the fraud perpetrated by former lawyer Garth Bailey comes close, a prosecutor argued in a Calgary courtroom on Monday. The instrumental role Garth Bailey played in a multimillion-dollar Ponzi scheme that bilked hundreds of investors warrants a prison term of between eight and nine years, Crown prosecutor Steve Johnston said during sentencing submissions before provincial court.

calgaryherald

Updated: September 9, 2014

Disbarred lawyer Garth Bailey, seen at benefit event, should be sentenced for between eight and nine years for his role in a multimillion-dollar Ponzi scheme, argued Crown prosecutor Steve Johnston.Ted Jacob / Calgary Herald

Maximum sentences are intended for the worst cases — and the fraud perpetrated by former lawyer Garth Bailey comes close, a prosecutor argued in a Calgary courtroom on Monday.

The instrumental role Garth Bailey played in a multimillion-dollar Ponzi scheme that bilked hundreds of investors warrants a prison term of between eight and nine years, Crown prosecutor Steve Johnston said during sentencing submissions before provincial court.

“The impact on these people has to be enormous. All of them put in a considerable amount of money and lost it, banking on an investment they thought would pay off,” Johnston said.

A big reason people believed their investment was sound, added Johnston, was because of Bailey’s assurances and his position of trust as a lawyer.

“These people believed Mr. Bailey was acting for them,” he said.

Judge Allan Fradsham convicted Bailey in May of fraud over $5,000, laundering proceeds of crime and conspiracy charges for his involvement in HMS Financial, a company that collected approximately $37 million from investors — and lost much of it in failed ventures.

Bailey, 61, was the lawyer for HMS Financial, which was established by Harold Murray Stark and Robert (Colonel) Fyn in 2000 and headquartered in the central Alberta community of Linden.

Fyn was considered the “directing mind” of the scheme and received an eight-year sentence after pleading guilty to fraud over $5,000 in 2011, while Stark received six years after admitting guilt to the same charge.

The pair offered high-yield returns of eight to 12 per cent interest per month. HMS used money from new investors to pay returns to previous investors. Meanwhile, the company invested the money in a number of other schemes that ultimately failed.

A Cardston-area investor complained to authorities in 2004, beginning a lengthy RCMP investigation that resulted in charges in 2010.

Despite Fyn and Stark’s roles as frontmen, Johnston said the success of the scheme hinged on Bailey lending a “veneer” of credibility to the company as its lawyer.

“Without him, it is arguable they would not have succeeded,” said Johnston.

HMS Financial enticed investors with a false claim their money was protected by a $30-million bond that could cover any losses.

Evidence during Bailey’s trial showed he had doubts about the bond’s authenticity as far back as 2003, but continued to vouch for the company and accept investors’ deposits.

Fradsham concluded Bailey’s wilful blindness made him as guilty of fraud as Fyn and Stark, who actively promoted the scheme.

The current maximum sentence for fraud over $5,000 is 14 years — but the stiffest penalty available to Fradsham is a 10-year term, which was the maximum at the time of the offences.

“This is the kind of case that calls out for something close to that range,” said Johnston.

Although the actual amount of money lost by investors is unknown, Johnston said it is easily in the millions, making the scale of the fraud an aggravating factor in the case — as was Bailey’s abuse of trust.

Bailey’s lack of a criminal record and good character can’t be used as mitigators in his favour because he used his reputation to carry out the fraud, Johnston argued.

While it’s common for prosecutors to seek restitution orders in fraud cases, Johnston declined, saying it’s unlikely Bailey is capable of repaying millions of dollars.

The Law Society of Alberta disbarred Bailey in 2010 and he obtained a court order requiring legal aid to pay for his representation on grounds that he couldn’t afford a lawyer.

Two ongoing class-action suits filed in civil court against HMS and its principals are the best venue for investors to recover any of their losses, said Johnston.

But it’s unclear how much money is left: authorities seized approximately $4 million from a trust fund in California when they shut down HMS, but Stark and Fyn claimed to be broke when they were sentenced in 2011.

The criminal case against Bailey returns to court on Sept. 16, when defence lawyer Andrea Serink is scheduled to make her sentencing submissions.

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